Bank lending seen to expand as economy recovers

Bank lending seen to expand as economy recovers

MANILA – The pace of the domestic economy’s recovery in the coming months is expected to be a major catalyst for growth in bank lending, which is in contraction despite the low interest rate environment.

In a virtual briefing on Thursday, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said bank lending has remained weak due to bank risk aversion and uncertainty.

“The improvement in bank lending activity in the months ahead will largely depend on the pace of economic recovery as a whole, which in turn would be determined crucially by the progress in the vaccine rollout,” he said.

Diokno said fiscal and monetary support will continue to underpin the prospects for sustained recovery.

“Fiscal policy, in particular, remains crucial in providing direct support to revive domestic demand and prevent long-term economic scarring from the pandemic, with the BSP remaining ready to implement further policy measures if necessary,” he added.

As of last April, outstanding loans of universal and commercial banks (U/KBs) fell by 5 percent, higher than the 4.5-percent contraction last March.

This development runs against the goal of the central bank when it slashed its key policy rates by a total of 200 basis points last year to help buoy the domestic economy from the impact of the pandemic.

The rate cuts aim to encourage banks to lend more and for borrowers to take out more loans to ensure that domestic economic activity remains robust despite the health crisis that has affected economies globally.

Diokno said the central bank will keep its accommodative monetary policy to ensure that interest rates remain low to help revive the domestic economy.

“Looking ahead, the BSP will continue to focus on keeping its monetary policy stance supportive of the government’s initiatives to address the effects of the pandemic, for as long as necessary, until the economic recovery gets underway,” he added. (PNA)

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